SEPA End Date Set for 1 February 2014

On 28 February 2012, the Council of the European Union (EU) adopted the “Regulation establishing technical and business requirements for credit transfers and direct debits in euro and amending Regulation (EC) No 924/2009” (the SEPA Regulation).

The SEPA Regulation has now set 1 February 2014 as the deadline in the euro area for credit transfers and direct debits, introducing common standards and general technical requirements. Effectively, this means that by this date, both existing national euro credit transfer and direct debit schemes will be replaced by SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD).

Changes due by February 2014:

• Implied use of ISO 20022 XML formats as the only format for SEPA: Local formats that are not SEPA compliant should not be used after 1 February 2014 in the euro area.¹
• IBAN only: The current requirement to provide the BIC (Bank Identifier Code) and the IBAN (International Bank Account Number) will be phased out. Banks will no longer be allowed to demand the BIC from their clients from 1 February 2014 (1 February 2016 if the Member State opts to delay) for domestic payments, and from 1 February 2016 for cross-border payments.

Other changes:

• In November 2012, cross border interbank fees (interchange) for direct debits will no longer be permitted. Domestic interchange fees are still permitted until February 2017 (where there is an existing interchange arrangement in place).

Impact on banks
The imminent end date deadline will force banks in Europe to fully migrate to SEPA. From 1 February 2014, banks have an obligation to provide XML formats if requested by their clients.
Banks will require a full SEPA solution and will need to evaluate if their current SEPA solution is still appropriate. Key considerations include:

• Integration to back office processes
• Automation
• Scalability
• Functionality (e.g. SDD Mandate Management, IBAN only)
• Formatting (XML) — a SWIFT FIN (MT103 conversion) based solution will no longer be available after 1 February 2014 in the euro area¹
• Readiness to support underlying corporate clients
• Efficient liquidity management for accounts across Europe

J.P. Morgan can help banks find the right SEPA solution that will meet their individual needs. We offer a range of SEPA services as part of our comprehensive euro clearing offering:

• SEPA Indirect Participation services to provide you with full reach and visibility to SEPA clearings
• Full SEPA XML pacs (Payments Clearing & Settlement) capabilities and SWIFT FileAct Communication for both SCT and SDD
• Solutions for seamlessly implementing SEPA Direct Debit Mandate Management into your environment (offered in conjunction with our strategic software partners)

Impact on non-bank financial institutions:
With the end date deadline now set, non-bank financial institutions who utilize euro low value clearing (in particular, insurance companies and asset managers) may want to consider establishing a migration plan to XML. J.P. Morgan recommends the use of XML formats but will continue to offer translation into and out of legacy formats currently used by clients.

As SEPA volumes continue to grow steadily, non-bank financial institutions may find that transitioning to SEPA may provide untapped opportunities for cost and operational efficiencies. Key considerations towards a smooth transition to SEPA include:

• Account opening
• Counterparty International Bank Account Number (IBAN) collection
• Counterparty bank capabilities
• Migration approach
• Formats
• Channels
• Modification of  reconciliation processes
• Effective liquidity management /centralization of accounts across Europe

Non-bank financial institutions who are considering using SEPA as an opportunity to centralize their payables and receivables across Europe can look to J.P. Morgan for SEPA solutions for 32 countries:

• Bank Identifier Code (BIC)/IBAN conversion service: For clients who are looking for a solution to convert basic bank account numbers (BBAN) into IBAN, J.P. Morgan has teamed up with Experian Payments who provide an automated BIC and IBAN conversion service for SEPA-compliant cross-border payments. Further services are under development for conversion and Creditor Mandate Management services
• SEPA Direct Debits: Clients can immediately benefit from lower interchange fees by using SDD from a cross border location (e.g. London or Frankfurt) and will benefit further from the phasing out of the interchange fees for cross border direct debits by November 2012.

As banks and non-bank financial institutions consider their SEPA options in view of the end date deadline, J. P. Morgan is ready to support our clients with a range of SEPA solutions. Give your relationship manager a call to discuss how we can help you to achieve your SEPA objectives.

¹For non euro countries, the deadline is 31 October 2016